How NOT to Invest in Property For Passive Income

November 21, 2019

🔥Want to invest in property and get passive income?🔥 Then don’t make this mistake (It stops 99% of investors from achieving their financial goals)

I want to talk about some of the biggest mistakes I see property investors make when trying to create a property portfolio that will pay them an income and help them retire earlier and wealthier than otherwise.

I mean, here’s a startling fact for you.

According to the ATO, the Australian Tax Office, only 1% of Australians end up with 6 or more investment properties.

Now it’s widely accepted that you need at least 5 or 6 investment properties paying more an income, so you have enough of a passive income in order to be able to retire. Yet only 1% of property investors in Australia ever reach that goal.

Why?

Well, over the last 17 years that I’ve been investing personally and now over the last nearly 10 years of helping people invest all around the country, I’ve seen so many people who want to invest in property get it wrong.

I mean, maybe you’re someone right now who wants to invest in property, but you’re wondering, is now the right time to buy a property? I mean, what if you buy an investment property, but then prices fall? But then what if you don’t buy a property and then values rise and you miss out? Or what if you buy an investment property, but then you struggle to get it rented?

Right, if any of those 3 things were to happen, you’ll end up behind on your investment goals. And remember, 99% of people end up failing to achieve their property investment goals.

So, what’s the thing that most people forget about when they look to invest?

Well, most people either invest because they see, “Oh prices are rising. I want to get in now. I don’t want to miss out on the price rise. Or other people think, “Oh look, the market’s going to crash. I’m not going invest right now. I’m going to wait for prices to get cheaper.” And then when they find out that prices don’t crash, they go, “Oh, I missed out. Now it’s too late.” OK? It’s all based on fear, either the fear of uncertainty that’s happening in the market or the fear of missing out.

But what I found over the last 17 years is that investors who succeed in their investment goals, they focus on 1 thing first. They focus on getting the rental return and capital growth combination correct. Here’s what I mean.

There is no point buying an investment property that’s heavily negatively cash flowed like many are in Sydney and Melbourne even if prices rise. Look, don’t get me wrong. You will make money. And if that’s all your goal is, to make money off 1 investment property, that’s great.

But if your goal is to build a property portfolio that will pay you an income, it doesn’t matter how much the value of the property rises if the rents don’t cover the mortgage, if the rents aren’t more than covering the mortgage and paying your income because you can’t leave your job until the properties are positively cash flowed. Right?

But so many people forget this key distinction. And so they end up buying properties that their friends have bought. They end up buying properties in locations that they think they know, without looking at the rental return and growth combination.

Now, why do I say the combination? Because I also see people who then go and do the opposite.

I was speaking to someone yesterday who was looking at properties in regional areas of South Australia. His rationale was, “Well, they’re cheap. They’re under $100,000. I can get some income from them, maybe they are bigger blocks of land so maybe I could subdivide and I can then have multiple properties paying me an income.”

And I said, that’s fine. And it certainly looks that way on paper. But the thing you have to understand is that, if you’re investing in property for the longer term, if you’re investing in property, so those properties will then sustain you financially, you’ve got to look at the long term growth rates of those areas that you’re looking to invest in. Is the population growing? Is there jobs growth?

Because if that is not the case, even if you go and buy a cheap property, that’s positively cash flowed today, if the population is shrinking, there’s a really, really high chance that sometime down the track, that property will no longer be positively cash flowed and then you’re essentially, well, screwed, right?

So that’s why, if you’re serious about building a property portfolio that can help you in retirement, that can help you give you a positive cash flow and a passive income over the coming few years, the first step you must take is that ensuring that your next investment property, if you already have some or your first investment property, that the rents pay for the mortgage, that you are not out of pocket and if anything, you really want to be getting a slight income. Even if it’s only 10 dollars a week, even 10 dollars a month initially.

But you’re buying in a market with good potential for capital growth, which means essentially, if you’re looking for a rule of thumb, take the low risk approach. Stick to capital cities. Okay? Find areas where the rents are really strong, where you can get a neutral or positive cash flow and look to minimise your risk.

Get the cash flow and growth combination correct and you will find that you’re giving yourself the best chance of joining that top 1 percent of Australia’s investors, that top 1 percent that have 5 or 6 investment properties paying them an income.

Look, it’s not going to happen overnight. It’s not going to happen immediately. If you’ve been following any of my work, you know, I’m not about get rich quick or, you know, trying to make a million dollars overnight. It is going to take a plan. It’s going to take the right strategy.

But the key first step is to ensure that you’re buying properties where the rents are covering the mortgage, the rents are paying you or the properties are paying at least a small amount of income so that you can then use that property to leverage and leapfrog into future investments.

Remember, the key philosophy behind investing in property should be that, that first property you buy should be a stepping stone to the next property. And then those two properties should be stepping stones into the next property. So you keep going from one to another.